Fees earned by firms managing Luxembourg and Dublin-based cross-border European mutual funds are forecast to slump by a quarter to €8.8 billion this year from a year before and drop to €7 billion in 2009, according to Lipper, the fund research company.

Management and performance fee revenues for cross-border equity, bond and money market funds reached €11.7 billion in 2007, on a total of €1.4 trillion in assets under management, but as a result of the market turmoil, they are forecast to fall this year and the next.

The fall in fee income this year and in 2009 will reverse a trend in which annual management fees have generally increased each year around Europe, from around 1.3 per cent in 1994 to 1.6 per cent to date, as measured by fees on cross-border equity retail funds.

The rising market muscle of professional fund buyers acting on behalf of clients, as well as European Union rules designed to boost financial services competition – such as the MiFID rules – should push down fees in future, said Ed Moisson, director of fiduciary operations at Lipper.

Total expense ratios – covering fees, transaction costs and other expenses in funds, have typically risen during equity bull markets and dropped when markets have fallen. When applied to actively managed retail equity funds, TERs dropped when the dotcom boom of the 1990s imploded, falling to around 1.7 per cent in 2000 before rising to around 1.9 per cent at the start of 2008.

Lipper said the most common reason given by firms for increasing management fees was paying the costs of fund distribution.